Near Retirement? Jumbo CDs Can Protect and Grow Your Cash Fast
If you're looking for a less risky option as you approach retirement, learn how much a jumbo CD can earn you in a short time.
As you approach retirement, you're likely to reallocate some of your funds to less-risky investments, especially given market volatility. One smart option to consider that can earn you a healthy return without the risk is a jumbo CD.
Jumbo CDs offer many advantages. First, you'll earn rates as high as 4.35%, keeping you ahead of rising everyday costs — March's CPI report showed inflation rose 3.3% year over year. Second, you don't have to tie up your money for a long period of time. Most jumbo CDs come with terms from six months to one year.
In turn, you can put some money in, earn thousands of dollars effortlessly, and have quick access back to your cash. Before signing up for one, let's take a look at how they work and the challenges of using one.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Jumbo CDs: Earning higher rates without the long-term commitment
As its name implies, a jumbo CD refers to the amount of money you deposit in it. Most banks require large deposits — think $50,000 to $100,000.
Because you're investing a higher amount, banks tend to reward you with higher returns than you would find on many savings accounts. Once your term expires in six months to a year, you'll have the option to renew it (some banks do this automatically) or you can close the account and invest in something else.
What's great about this approach is that you don't have to lock in your money for years at a time. If prices continue to rise, you might want to consider something with a little more risk and higher rewards to keep ahead in the future. A jumbo CD gives you the flexibility to earn a healthy return quickly, without overcommitting.
Use this Bankrate tool to compare options:
Before opening one, consider these things…
First, you must be okay parting with that money. Jumbo CDs also have early termination fees, amounting to months of earned interest.
If you need to break open the CD early, it could cost you hundreds to thousands of dollars, so only do this if your cash flow and emergency fund are in a good place.
Furthermore, it won't be a smart move if you're looking to catch up with your retirement savings. While you won't have the risk, moving money from investments (where you can earn significantly more historically) to savings could shortchange your future if you need those higher returns.
How much can I make a jumbo CD?
The other thing to consider is how much you'll gain from opening one. This can help you chart your savings progress to ensure the earnings keep you on course.
Thankfully, a jumbo CD is one of the best ways to grow your cash fast. Here are some examples of how much you can earn in a short period of time:
Bank | Term | Deposit | APY | Estimated earnings over term |
|---|---|---|---|---|
1-year | $100,000 | 4.35% | $4,350 | |
1-year | $100,000 | 4.15% | $4,150 | |
9 months | $50,000 | 4.05% | $1,519 |
As this table illustrates, if you can devote $100,000 to a jumbo CD, you'll earn over $4,000 merely for opening an account. And you'll have a few other benefits too:
- If you choose a bank offering FDIC insurance, your assets are protected up to $250,000 per account holder
- In one year, you can reinvest this money in the stock market or try another investing solution
- If the Federal Reserve cuts rates during your term, it won't impact your earnings
Ultimately, the benefits of a jumbo CD make it a smart bridge investment if you're approaching retirement and want to earn a healthy return without the risk.
Just know that any earnings on CDs are taxable as ordinary income, so make sure to include this in your financial planning so you're not surprised come tax day. That aside, this is one of the best ways to keep your cash safe while growing it at a rate that outpaces rising inflation.
Related content
